Case Study: The Strategic Alliance Between Renault and Nissan

Renault and Nissan are two major automobile brands working independently as well as are in a 19-year old alliance where Renault holds 43.4 percent stake in Nissan and Nissan owns 15 per cent in Renault.   The Renault-Nissan Alliance  is the first of its kind involving Japanese and a French company. Renault was identified for modern design and Nissan for the excellence of its engineering. The two companies had just decided to a most important strategic alliance in which Renault would take for granted $5.4 billion of Nissan’s Debt in return for a 36.6% equity share in the Japanese company. Before the alliance it was concluded that the combined company would be the world’s largest car-maker.

Strategic Alliance Between Renault and Nissan

In the case of Renault-Nissan, it is preferable to have an alliance than merger for many reasons. Alliances would facilitate more than mergers the entrance for companies to new geographical phases where there are some restrictions on foreign investments. The two companies had their own capabilities in their own market. Renault for instance, already existed in Europe and North America, and was well-known for its design and marketing. At the same time Nissan was the powerhouse engineering in Japan, Europe and North America. Therefore, there was a good chance for Renault to enter the Japanese market where there are many barriers from the Japanese government.

Synergy however, is vital for alliance. Alliance would be more rational when the two firms look for further synergy in their financial, technological aims.  This synergy between two companies was the key element for choosing Nissan-Renault alliance. According to Carlos Ghosn, the manager of the Renault-Nissan alliance: “we said from the beginning that we were not looking for a merger, but rather to get greater value from synergy between the two companies”. According to Ghosn, the reason for choosing alliance rather then merger was that both companies were looking for “turnaround”. Although alliance was more risky than merger, yet they chose it because they thought it would give them more opportunities to develop.

However, despite the advantages Nissan-Renault gained from the alliance, they faced challenges. One of the challenges is whether the alliance would lead to an increase or decrease in the price share. This was a real challenge for Nissan, whose share price fell when it entered the alliance. Furthermore, the two companies had a challenge of cross-culture problems. However, with their ability to focus on the work objective they were able to succeed.

Renault: Before and After the Alliance

The alliance between Renault and Nissan was an outstanding paradigm of a successful alliance around the world. However, before 1999, the prospective of forming an alliance between these two firms was not such rosy.

From Renault’s point of view, various factors were strengthening the former opinion. Firstly, Renault was recovering during 1996 and 1998-9 turning losses of US$680 million into combined profits of US$1.65 billion. Moreover, the failure to merge with Volvo in 1995 had left its mark on the company and any further attempts to a new alliance were confronted distrustfully. In addition, the fact that both firms were playing a dominant role in the auto industry of their countries was indicating that a potential alliance was going to collapse in a decision-making stalemate.

Nevertheless, the supporters of the latter argument were gainsaid. The mutual benefits that they were going to absorb from the alliance laid aside the potential problems and both parties focused on the success of the alliance. This was a crucial challenge, which they managed to handle by learning to trust each other, be truthful and honest during the negotiations. Additionally, by forming joint study teams, in order to test their companies’ ability to work cooperatively, they minimized the cultural stereotypes and set the base for exploiting joint synergies. The two companies were so complementary in terms of geography, product ranges and personality that inevitably the future was foreboding promising. Besides, this process gave Renault an advantage over competitive suitors such as Ford and Daimler-Chrysler, which focused only on finding synergies on past and current advantages rather than on a prospective productive future.

On this basis, Renault, through the alliance with Nissan, achieved to gain international structure which enabled it to deal successfully with the changes which were taking place on the world automobile stage. Thereby, Global synergies and the expansion of its production to foreign , until then, markets like Japan, North America and Asia enhanced its potential and made it a countable member in the auto industry.

Nissan: Before and After the Alliance

Nissan’s history starts from the early of 1933. Nissan is a Japanese automobile manufacturer which achieves, through the years to have strong market presence in Asia and US. Except for the fact that Nissan was a highly emblematic symbol of Japan’s industrial strength, had also a number of strong points such as technological and engineering competence, and also was good at making large cars.

In late March 1999 Nissan and Renault sign an agreement for a Global Alliance. Aim for this agreement was to provide an advantage and achieve profitable growth in both companies. However, Nissan was nearly bankrupt and faced significant debt problem when the alliance formed. One of the major reasons for this debt and financial difficulty was the fact that Nissan invested a lot of money in different companies and this has a result, Nissan not be in position to invest money in the company and its products. Therefore the company for a long time did not have any profit and this made the debt for Nissan in 1999 to reach the US $22 billion. Furthermore, during the same year (1999), the domestic market share had fallen from 17.4% to 13%.

Have in mind this and after that Daimler Chrysler and Ford refused the idea of a partnership and broken of the alliance talk with Nissan, the company resorted to the strategic alliance with Renault, where both companies had clear idea of what they wanted. The alliance was vital for the two companies as Nissan needed Renault’s cash in order to reduce its debt problem and Renault wanted to learn from Nissan’s success in US and Asia which was essential for the expansion in its market. During the period of social initiation process, of six months, many advantages arose over competitors as they carried out static analytical evaluations and they focused on finding collaborations based on their past and current strengths rather than on jointly future.

In order to accomplish this, Nissan had change significantly to redeem its profitability and competitiveness. First Nissan quit the investments in other companies, in other words the keiretsu which is “a Japanese traditional rule” that requires all the companies in Japan to have long-term purchasing relationship, intense collaboration and frequent exchange of personnel and technology between companies and selected suppliers. The personal management also had changed and whereas Nissan in the past appraised their employees based on the period that they were working for the company, now they changed the criteria of evaluation by looking on the performance of each employee. Further they set up a common language i.e. English and they have created nine Cross-functional teams. By the implementation of the above changes, Nissan manage to cut down in purchasing cost, to reduce suppliers, to close overlapping outlets and plants and finally to reduce the work force.

Through the alliance of Nissan and Renault, the benefits that arose were obvious and determinant. Transparent bench-marking allows two culturally diverse companies to share best practices and also the common platform and shared purchasing strategy had delivered huge cost of savings. Noticeable is the fact that in order to preserver corporate identities they decide to remain as separate managements, separate brands and separate companies while every decision was affecting both brands.

The operation recommendation which arise from this alliance case provide valuable elements on how two companies, that are in the same situation like Renault and Nissan which show strength in different competence and regions of the world (Nissan had strong presence in Asia and US while Renault had presence in Europe), can approach the growing and competitive auto manufacturing global market.

Therefore the success of this alliance is also interrelated with the synergy among the two companies and the framework of equality help the transfer of knowledge between foreign engineering teams.

Finally Nissan successfully achieve to jump from seventh most valuable automobile company in the world to the fourth.

Structure of the  Strategic Alliance Between Renault and Nissan

Strategic alliances are said to be a source of competitive advantage. However there is a growing concern over their failure rates. One of the major causes is the inability to implement the appropriate governance structure and management control systems in the newly formed association. Most of the companies form an alliance management teams which manage across the organisation using Cross-Company Teams, Cross functional teams, Steering Committees and Alliance Board.

Structure of the  Strategic Alliance Between Renault and Nissan

By observation, Renault’s was interested in creating respect between two alliance partners and respectively followed an Andean civilization approach to work together for six months before forming an alliance. The social initiation process provided Renault-Nissan an advantage over its competitors such as Daimler-Chrysler. The later company did not experiment social collaboration to develop the ability of sharing knowledge and building trust. Therefore the structure in Renault and Nissan was the result of, what the companies experienced during the social initiation stage. They formed a new board having 5 members each from the host companies. Further to speed the integration and improve communication process they created 9 Cross-functional teams (CFT) and 11 Cross-company teams (CCT). More importantly, these teams had a Chair person from Renault, Vice Chair person from Nissan or vice-versa. Moreover the CFT was limited to 10 members from different departments such as purchasing, manufacturing which ensured progress between these departments. As a result the alliance was able to launch 22 new car models in the next three years and increase the manufacturing capacity in Japan.

Moreover the CCT created efficient synergies. One of the examples of amalgamation process was in Mexico. Renault had left the market in 1986 and Nissan was facing overcapacity in 1999. So alliance decided to put the managers from both the companies together and recognize synergy opportunity. In just five months Renault cars were being manufactured out of Nissan plants and the capacity utilization of the plant increased from 56% to nearly 100%.

In summary cross-company teams allowed Renault-Nissan to first go through a social initiation experience and then move into a formal framework of collaboration and knowledge exchange. Similarly cross functional teams enhanced the process of integration.

Cooperative Operation

Cooperation - Strategic Alliance Between Renault and Nissan

Supply chain management is one of the areas of key concern for global car manufacturers. Major players in Car Industry are looking for revolutionary methods of management of their suppliers. In Renault-Nissan case, RNPO or Renault Nissan Purchasing Organization is a unique joint organization responsible for integrating purchasing Strategy. As a result of mutual engineering efforts, Renault and Nissan cars can share components. This fact allows the alliance to combine their purchasing orders. Therefore, not only the cost of order has reduced but RNPO “defines worldwide purchasing strategy” and now it is accountable for full purchase of Nissan and Renault.

Another area for mutual cooperation between two companies is engineering which could be a lesson for other car manufacturers to reach economic of scale and scope. The key difference in Renault-Nissan case is concentrating on designing and producing components of car jointly instead of developing whole car from scratch. The alliance achieves economic of scale by producing in larger scales and economic of scope by manufacturing components which are compatible for different models of both brands. Moreover, one of top priorities of MNC is to find a way to reduce R&D cost as well invest in new technologies with lower cost. For instance, according to Renault website, the alliance helps two companies to invest in advance technology like hybrid vehicles.

To conclude, Renault and Nissan  successfully integrate their complimentary competencies to standardize their purchase orders and components manufacturing. Therefore they can reduce their cost and achieve greater outcomes.

The Role of Corporate and National Culture

Corporate culture is the combined beliefs, values, ethics, procedures, and atmosphere of an organization. One of the important issues raised in the Nissan-Renault alliance is the management of two different cultures. While Renault strategy was liked western strategic orientation and Nissan was under the influence of corporate and national culture. Accordingly, the collective share of ideas and strategic management were effective and the employees of both companies could understand each other culture background, subsequently respect the identities of their colleagues as well as their values. Thus, Ghosn put cross- culture training programs for over 1500 employees from Renault to learn about the Japanese culture and 400 Nissan employees study the French culture. It was a first positive step in terms of creating a successful alliance of two different cultures. After presenting the French and Japanese culture, it was significant to understand their differences. Japanese societies are well-known to be more collectivist and in opposite, French societies are based on individualistic efforts from employees. As the decision making process in Nissan was working the precept of group-think, mostly the people who thought alike. Moreover, Nissan had a problem in terms of excess capacity that was based on an unofficial contract that existed between Japanese auto companies and their employees. Ghosn closed five factories and cutting some 21,000 jobs to broke this custom. He also took on the close network of relationships between auto companies and their suppliers, relationships denoted by a specific Japanese word, keiretsu. Also after this situation he employed new engineers in to the Nissan organisation, he decided to put English as formal language for company to deal with diversity of language spoken. In addition, in the Japanese culture, is not possible for a young employee to be manager for a colleague who is older in terms of age and seniority. However, the ECO’s new system of promotion to begin restructuring the management process in company, was based on performance and efficiency, not employees age.

As a result, the Renault-Nissan alliance has been hugely successful. There is broad acknowledgement by many at senior levels inside both companies that much credit for this must be given to their conscious effort to build cross-cultural understanding from the start.

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